I’ve been reading up on freemium lately, and one of the things that really stick out is that too many companies let their free users get away with paying nothing at all. The only reason for giving away your product to some customers, it to get something back. Even if your marginal cost for giving away one copy of your product is nearly zero, it’s not entirely zero. Alas, you will lose money for each and every customer that don’t give anything back.
Look at newspapers or Skype or Google or Facebook: you are not the customer, you are the product. And this is a very important lesson when using the freemium model, and is also a part of Fred Wilson’s freemium definition (look at what I have emphasized):
Give your service away for free, possibly ad supported but maybe not, acquire a lot of customers very efficiently through word of mouth, referral networks, organic search marketing, etc, then offer premium priced value added services or an enhanced version of your service to your customer base.
As long as you have freeriders that don’t give any value back, you are actually losing money on them. Giving away your product for free is a very powerful tool, but be sure to understand how you actually utilize its powers to earn more money. I can’t say it better than Mark Cuban:
When you succeed with Free, you are going to die by Free.